What makes Treasury bond yields go up and down?
What makes Treasury bond yields go up and down?
Homework Answers
Answer
The treasury bond is the bond issued by the government. The yield on treasury bond is the amount of money earned for buying and holding the bond. The yields on treasury bond depend on the bond prices. The movement of price affects the yield on bond. The yield on bond rises when price of bond goes down and the yield on bond decreases when price of bond goes up.Now the price of the bond depends on the supply and demand for the bond.The treasury bond is very safe to hold as it is a government issued bond. When the demand for treasury bond rises, the price of the bond will rise. If the price of the treasury bond rises, the buyers have to pay more to buy the bond. As a result the expected return or yield on bond decreases. Again if there is an excess supply of treasury bond in the market, the price of bond will decrease to attract the buyers to buy the bonds.If the price of the bond decreases, the bond will be cheaper which increases the future yield on treasury bond at the given interest rate.
The other things that affect the yield on treasury bond are the
interest rate, and the time of holding the bond. The treasury bond
yields depend on the interest rate paid on bond. Higher the
interest rate, higher would be the yield on bond. The low interest
rate on a bond will yield low return.The time period of holding the
bond also determines the total yield on bond. The bond is issued
for a particular time period. The longer the time a bond is held or
if the bond is purchased for a long period, the yield at the time
of maturity would be higher.
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